[Federal Register: June 19, 2006 (Volume 71, Number 117)]
[Proposed Rules]
[Page 35369-35371]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19jn06-34]
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Part IV
Department of Housing and Urban Development
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24 CFR Part 203
Adjustable Rate Mortgages--Additional Index; Proposed Rule
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 203
[Docket No. FR-4969-P-01; HUD-2006-0176]
RIN 2502-AI32
Adjustable Rate Mortgages--Additional Index
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.
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SUMMARY: This rulemaking proposes to add the one-year London Interbank
Offered Rate (LIBOR) as an acceptable index for the rate of HUD-insured
Adjustable Rate Mortgage (ARM) products. Under current regulations,
only the weekly average yield of U.S. Treasury securities, adjusted to
a constant maturity of one year (commonly referred to as the Constant
Maturity Treasury index (CMT)), may be used to adjust interest rates on
HUD-insured ARMs.
DATES: Comment Due Date: August 18, 2006.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Regulations Division, Office of General Counsel,
Department of Housing and Urban Development, 451 Seventh Street, SW.,
Room 10276, Washington, DC 20410-0500. Interested persons may also
submit comments electronically through the Federal eRulemaking portal
at: http://www.regulations.gov. Commenters should follow the
instructions provided on that site to submit comments electronically.
Facsimile (FAX) comments are not acceptable. In all cases,
communications must refer to the docket number and title. All comments
and communications submitted will be available, without revision, for
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the
above address. Due to security measures at the HUD Headquarters
building, please schedule an appointment to review the comments by
calling the Regulations Division at (202) 708-3055 (this is not a toll-
free number). Copies submitted electronically are also available for
inspection and downloading at http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: James Beavers, Director, Home Mortgage
Insurance Division, Office of Single Family Housing, Office of Housing,
Department of Housing and Urban Development, 451 Seventh Street, SW.,
Washington, DC 20410-8000; telephone (202) 708-2121 (this is not a
toll-free number). Persons with hearing or speech impairments may
access this number through TTY by calling the toll-free Federal
Information Relay Service at (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
HUD's previous policy had been to use the weekly average U.S.
Treasury securities rate adjusted to a constant maturity of one year as
the basis for interest rate adjustments on HUD-insured ARM loans. HUD
believed that an index calculated and published by the U.S. Government
was appropriate for mortgage loans insured by the U.S. Government (see
the responses to public comments on the hybrid ARMs rule published on
March 10, 2004, at 69 FR 11500). However, the growing popularity of the
LIBOR rate, including in the secondary market, has led to a change in
HUD's policy on this issue.
LIBOR is both an international rate determined on the basis of the
world economy and a rate that has recently become widely used for ARM
loans in the United States. LIBOR loans have become very popular in the
secondary market, and this greater liquidity allows lenders to offer
lower margins to borrowers.
The LIBOR rate and the Treasury one-year constant maturity index
have historically tracked each other closely over time. While the LIBOR
rate may often be slightly higher, the better margins available for
LIBOR-indexed loans often make LIBOR-based loans a better deal for
consumers.
In addition, as LIBOR loans become more popular, it is necessary
for HUD to offer a LIBOR option to remain competitive in the secondary
market. With the large number of lenders now offering LIBOR-based ARM
loans, it no longer makes economic sense for FHA to restrict itself to
the Treasury index.
Under the authority of section 251(a) of the National Housing Act,
12 U.S.C. 1715z-16(a), HUD may set by regulation a national interest
rate index, and information on the index must be readily available to
mortgagors. The one-year LIBOR index is widely published and meets this
availability requirement. Information on LIBOR rates is readily
available through a variety of media, including the Internet.
II. This Proposed Rule
This proposed rule therefore would amend HUD's regulations at 24
CFR 203.49(b) to add the LIBOR index as an acceptable index for
determining interest rate adjustments of HUD-insured ARMs. This rule
would not cover Home Equity Conversion Mortgage loans, which are
governed by separate regulations at 24 CFR part 206.
III. Findings and Certifications
Impact on Small Entities
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally
requires an agency to conduct a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements, unless the
agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities.
This rule would permit greater flexibility for lenders that, in
offering ARMs to homebuyers, want to have a choice of indices for
determining interest rate adjustments for the ARM. However, this rule
would not require any small business to take any action or meet any
requirements. Therefore, this rule would create no impact on small
entities.
Therefore, the undersigned certifies that this proposed rule would
not have a significant economic impact on a substantial number of small
entities, and an initial regulatory flexibility analysis is not
required. Notwithstanding HUD's determination that this rule would not
have a significant economic effect on a substantial number of small
entities, HUD specifically invites comments regarding any less
burdensome alternatives to this rule that will meet HUD's objectives as
described in this preamble.
Environmental Impact
This proposed rule involves the establishment of interest rates and
related external administrative or fiscal requirements or procedures
that do not constitute a development decision that affects the physical
condition of specific project areas or building sites. Accordingly,
under 24 CFR 50.19(c)(6), this rule is categorically excluded from
environmental review under the National Environmental Policy Act of
1969 (42 U.S.C. 4321 et seq).
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits, to the
extent practicable and permitted by law, an agency from promulgating a
regulation that has federalism implications and either imposes
substantial direct compliance costs on state and local governments and
is not required by statute, or preempts state law, unless the relevant
requirements of section 6 of the Executive Order are met. This proposed
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rule does not have federalism implications and does not impose
substantial direct compliance costs on state and local governments or
preempt state law within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2
U.S.C. 1531-1538) establishes requirements for Federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and the private sector. This proposed rule would
not impose any Federal mandates on any state, local, or tribal
government, or the private sector within the meaning of UMRA.
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866 (entitled ``Regulatory Planning and Review'').
OMB determined that this rule is a ``significant regulatory action,''
as defined in section 3(f) of the Executive Order (although not
economically significant, as provided in section 3(f)(1) of the
Executive Order). Any changes made to the rule subsequent to its
submission to OMB are identified in the docket file, which is available
for public inspection between 8 a.m. and 5 p.m. weekdays in the Office
of Regulations, Department of Housing and Urban Development, 451
Seventh Street, SW., Room 10276, Washington, DC 20410-0500.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number applicable to
this rule is 14.175.
List of Subjects in 24 CFR Part 203
Hawaiian Natives, Home improvement, Indians--lands, Loan programs--
housing and community development, Mortgage insurance, Reporting and
recordkeeping requirements, Solar energy.
Therefore, for the reasons stated in the preamble, HUD proposes to
amend 24 CFR part 203 as follows:
PART 203--SINGLE FAMILY MORTGAGE INSURANCE
1. The authority citation for 24 CFR part 203 continues to read as
follows:
Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z-16, and 1715u; 42
U.S.C. 3535(d).
2. Amend Sec. 203.49 by revising the first sentence of paragraph
(b) to read as follows:
Sec. 203.49 Eligibility of adjustable rate mortgages.
* * * * *
(b) Interest rate index. Changes in the interest rate charged on an
adjustable rate mortgage must correspond either to changes in the one-
year London Interbank Offered Rate (LIBOR) or to changes in the weekly
average yield on U.S. Treasury securities, adjusted to a constant
maturity of one year. * * *
* * * * *
Dated: May 25, 2006.
Brian D. Montgomery,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 06-5494 Filed 6-16-06; 8:45 am]
BILLING CODE 4210-67-P